About Me

Wednesday, July 31, 2013

There are a few Philippine-based foreigners that I
admire, especially those who are free market-leaning thinkers. Like good friend
and fellow Rotarian, Bruce Hall, based in Iloilo City; Peter Wallace, and John
Mangun.

John is an American stock market investor and analyst at
the Philippine Stock Exchange, and does business consulting, writing columns, on
the side. He has been living in this country for more than three decades now.
His kids were born here. John’s articles are archived in his website, http://www.mangunonmarkets.com/.

I am posting below three of his recent articles, about
the slow economic decline of the West and the US in particular, almost in
tandem with these economies’ piecemeal departure from free market policies and
respect for economic mobility of individuals. Five pages for these three
articles below, enjoy.

THERE are many reasons why for 100 years, the United
States was the global center of economic power and innovation.

The US was isolated from military invasion. The land was
rich with mineral wealth and, more important, vast farmlands capable of
producing an abundance of food and agricultural raw materials. While the
European nations all had colonies in every corner of the world providing both
natural resources and markets for their goods, the US had to rely on creating
its own wealth.

The Industrial Revolution began and was in full swing in
Europe long before the US entered its darkest period, the civil war, which tore
the country apart. But it was the US that took the advancements brought about
by the Industrial Revolution and made the country the most prosperous in
history.

The one defining characteristic of the US that separated
it from every other nation on earth was economic mobility, the freedom and
ability for virtually everyone to move up the economic ladder. The social and
economic structure of every other country severely limited a person’s
opportunity to become wealthier. The social and economic-class structure was
fixed. A peasant would always be a peasant. One who was born into a family of
shopkeepers would never become part of the ruling elite class. And by the same
token, a member of the aristocracy could never understand what starting from
the ground up would mean.

The Industrial Revolution slightly opened the door of
economic mobility but it was the very rare exception of a man who started at the
bottom and could work his way to the top of any private or public organization.

The US was the exact opposite. Each man had the chance to
excel and achieve, based on merit and effort, not the status and station into
which he was born. Of course, there were many rich families that savagely
protected their own interests; oligarchs we call them today. But the system was
designed to reward initiative and smart work.

Some of the most successful men in US history made the
move up the economic food chain. John D. Rockefeller, in his time the
wealthiest man in the world, was the son of a traveling salesman.

Rockefeller’s first job at 16 was as an assistant
bookkeeper. Railroad and shipping magnate Cornelius Vanderbilt quit school at
11 and at 16 ran a small sailboat ferry in New York City. The founder of US
Steel Corp., Andrew Carnegie, came with his family as poor immigrants from
Scotland, borrowing money to make the voyage. Henry Ford started as an
apprentice machinist and owned a small sawmill to pay the bills while he
studied engineering and bookkeeping. Wall Street icon Jesse Livermore ran away
from home at 14 because he did not want to work on the family farm. Another
stock-market name, James Fisk, ran away from home and worked at a circus.
Fourteen years later he became a stockbroker.

The US was a nation where a person could start by
cleaning tables at a fast-food restaurant with the idea that someday he/she
could own their own restaurant. That is economic mobility.

But since the 1970s, economic mobility has disappeared in
the US at an alarming rate. We know that small- and medium-size businesses are
the economic drivers of an economy. The number of self-employed Americans at
the end of World War II was roughly one-quarter of the country’s population.
Now it is at a historic low of 7 percent.

US economic mobility has been destroyed to the point
where one person may own 20 McDonald’s restaurants serving tens of thousands of
customers who will never have a chance at business ownership. In 2013 more than
50 percent of all working American earn less than $30,000 a year, the minimum
wage.

Economic mobility is not a government program. It is a
mindset of the people. The “rags-to-riches” success stories of our now elderly
taipans are still being repeated. The one-man food kiosk that 10 years later is
300 strong. The small factory that worked to develop an export market. The
tricycle driver who believes one day he can own his own tricycle, his own
business.

The West is dying. Countries like the Philippines will
eventually be the economic drivers of global wealth creation. The reason is
that these nations are embracing and using the same formulas for economic
success that made the West strong.

NEARLY everyone in the civilized world wants or should
want America to continue to be a “shining beacon on the hill,” at least
economically. The US is a major exporter of food, US farmers feeding a good
portion of the world. China, for all of its long-term moves to bolster its
domestic economy, still needs the US consumer to keep the factories open until
the people are rich enough to support their own industry.

Nations around the world from Tajikistan to Mexico to
China count on remittances from their people living in the US. Overseas foreign
workers and residents living in the US sent home $120 billion in 2012. The
biggest recipients of US remittances were Mexico ($22 billion), followed by
China and India. Americans, while not the biggest anymore, still spend about
$60 billion a year as tourists around the world.

Most of the time, when a US company develops something
new for our high-tech world, the final development and manufacturing is done
outside of the US, employing literally millions around the globe. Several
million are employed from the Philippines to the Ukraine taking
customer-service calls from US residents to keep the high-tech things, from
software to cell phones, working.

No matter how bad the economic or social-political
situation may get in any country on the planet, having even a small portion of
your wealth stored in “greenbacks” will at least get you to the next safe
country down the road.

Regardless of how negative the sentiment toward the US
has been through the decades, most everyone has expected and even counted on
Uncle Sam being there at the end of the day.

But this time it is different.

On Tuesday this column was entitled “The economic death
of the West?” Of course, the Filipino Philippine haters immediately took
exception to the comment that, “countries like the Philippines will eventually
be the economic drivers of global wealth creation.” However, that is not an
opinion; that is a conclusion based on the facts. Others took exception to the
use of the word “death,”’ almost paraphrasing Mark Twain when he wrote to a
local newspaper, “The reports of my death have been greatly exaggerated.”

But this time it is different.

Take the US debt. Back in 1970, the total amount of debt
in the US (government debt + business debt + consumer debt, etc.) was less than
$2 trillion. Today it is over $56 trillion. Total public and private debt has
been growing at a compound rate of over 8 percent in the last 40 years or
double the inflation rate. But it is worse than that for the US government. If
the US government was a company with assets and liabilities and US citizens the
shareholders, each shareholder holds $500,000 in assets. But liabilities are
over $1.5 million. And the company income and revenues are not growing as fast
as the debt.

In 2001 US gross domestic product (GDP) accounted for 32
percent of all global economic activity. By 2011 the US share of global GDP
dropped to only 22 percent, down 30 percent in 10 years. Also since 2001, more
than 50,000 American manufacturing plants of all types have permanently closed.
Even though the US population has doubled since 1950, there are less Americans
working in manufacturing today than there was then. The Economic Policy
Institute says that the US is still losing a half-a-million jobs to China every
year. The North American Free Trade Agreement was passed in 1993. At that time
the US had an annual trade surplus with Mexico of $1.6 billion. Now it is a
trade deficit of $62 billion.

These conditions, if they continue, means that the US
economy will become a shadow of what it once was at its peak. That is no more
an opinion than to say that Japan’s population will fall by more than 10
million people by 2030 if their current birth rate stays the same.

But can these trends be changed? Of course, but the
solutions are incredibly complex. Look at the issue of call centers in the
Philippines. The government used all its influence possible to defeat a US
anti-outsourcing law. US consumers did not want to pay more to keep jobs in the
US. The US companies that outsource fought against the bill. But the law would
have brought about a million jobs back to US shores. Aren’t countries supposed
to make economic decisions in their own self-interest?

WHEN talking about balancing the responsibilities and
power of the government with the requirements and practical reality of private
businesses, small minds like to make it a discussion of good versus evil.

There is only one good: The good of all the “little
people,” who, in fact, own the overwhelming majority of all businesses.

A certain amount of government regulation is important,
necessary and even vital to a well-functioning economy and the society that it
supports. The problem is determining how much regulation is enough and how much
is too much, and that is a question yet to be answered after hundreds of years.

Take the financial industry. It is probably the most
regulated business sector in any economy, because it is absolutely vital to the
health and prosperity of every modern nation. In the US, for example, financial
companies are subject to national-government control, as well as state laws and
regulations. Behind those laws are the enforcement powers of the Federal Bureau
of Investigation, the Department of Justice, national security agencies and
taxation authorities.

A regulatory system has been in place and, supposedly, is
constantly being upgraded and enhanced to protect the public. And yet,
international investment firm JPMorgan has paid some $7 billion in the last two
years as fines for misconduct. This month it paid $410 million as settlement
for the unproven charge of manipulating energy prices. That’s fine, as it is
just 0.4 percent of its annual projected revenue of just below $100 billion.

Does JPMorgan need more effective regulation, or is the
government simply unable to do its job?...

…At what point should the government step in to regulate?

In January 2012 two US entrepreneurs built a smartphone
application (app) to bring people together to share rides. They operate in
several locations and have raised $10 million from investors. In the last
month, San Francisco airport officials have been arresting drivers using this
ride-share app. The San Francisco Cab Drivers Association and the United
Taxicab Workers of San Francisco are demanding that city officials and
regulatory agencies consider ride-share companies as illegal taxi services. The
California Public Utilities Commission is trying to figure out how to regulate
this business.

The ride-share drivers only receive a donation and do not
have set fees. The app companies receive a fee from the people who connect for
ride-sharing. Some drivers do this part-time, like the son in my example.

The overall issue of this ride-sharing business is, of
course, not as simple as I have described it. But the core issue is simple. At
what point should the government and its regulatory powers step in to control
the economic activities of private citizens?

Should all private economic activity be regulated? Should
economic activity of a certain amount be subject to government involvement?

I don’t know. But I do know this: We have a continuing
struggle to find a balance between the economic rights of the little people and
the power to regulate those rights given by those people to the government.
When small minds discuss this fundamental economic question in terms of
political ideology, academic theories, or good and evil, the government, the
people and business are all losers.